* World stock markets at more than two-week highs
* China's yuan at near 4-week peak
* Fed's Powell Jackson Hole speech reassures markets
* Mexico, U.S. close in on NAFTA deal, talks resume Monday
* German business sentiment improves, US stock futures up
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Updates price action in Chinese yuan, stocks)
By Dhara Ranasinghe
LONDON, Aug 27 (Reuters) - World stocks rose to their highest level in over two weeks on Monday, following reassuring comments from the U.S. Federal Reserve chief, signs of progress on a U.S.-Mexico NAFTA trade deal and a bid by China's central bank to stabilise the yuan.
A stronger-than-expected German business sentiment survey added to the upbeat mood in Europe, with stock markets in Paris and Frankfurt up about 0.5 percent each .
British markets were closed for a public holiday, while U.S. stock futures pointed to fresh gains on Wall Street.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.1 percent and Japan's blue-chip Nikkei closed at a 10-week high.
That left the MSCI All-Country World index, which tracks shares in 47 countries, at its highest level since Aug. 9.
Comments from Fed chief Jerome Powell at the Jackson Hole symposium on Friday affirming that the U.S. central bank was sticking with its strategy of gradual rate hikes to protect economic growth sparked a rally in stocks that gathered pace as a new week swung into gear.
Helping to brighten the mood, U.S. and Mexican trade negotiators are seen as close to reaching a common position on the North American Free Trade Agreement (NAFTA).
The talks will resume on Monday and a positive outcome could ease concerns about an escalation in global trade tensions.
"The (NAFTA) talks add to the sense that while the U.S. is still bogged down in its trade conflict with China, it is perhaps more willing to compromise elsewhere such as with Mexico and the EU," said Ulrich Leuchtmann, head of FX and emerging market research at Commerzbank in Frankfurt.
"It's decreasing the risk of a global trade war."
A strengthening in the Chinese yuan, one causality of heightened trade tensions, also boosted sentiment.
China's yuan rose to a near 4-week high to the dollar after the central bank revived a "counter-cyclical factor" in its daily fixing to support the currency, halting a record 10-week slide that rattled global markets.
The announcement was seen as the latest signal from the People's Bank of China that is not comfortable with a further yuan depreciation that could spark capital outflows from the cooling economy.
Spot yuan opened onshore trade at 6.8080 per dollar and closed domestic trade, at 0830 GMT, at 6.8171, or 19 pips firmer than the previous late night session close.
The offshore counterpart rose to a high of 6.7818, its strongest since July 31.
A firmer currency helped to lift Chinese shares to two-week highs, with the Shanghai Composite index closing up 1.9 percent. Hong Kong stocks posted their biggest one-day percentage rise in six months.
The move raised hopes that a yuan recovery could boost companies with significant dollar-denominated costs, such as airlines. China Southern Airlines gained 4.5 percent and Air China rose 3.25 percent.
"China just seems to be stabilising its currency and we're getting used to that fact now, so we're not looking at an ever-weaker CNY, which could raise issues," said Robert Carnell, chief economist and head of research, Asia-Pacific at ING.
On Friday, the S&P 500 index and Nasdaq Composite hit record highs, following Powell's comments. The gains cemented the S&P's longest-running bull market, as defined by some investors.
S&P 500 E-mini futures touched a record high of 2,885 during Asia trade, and were last up 0.23 percent.
In Europe, data showed German business morale improved by much more than expected in August, suggesting that concerns about a global trade war among company executives in Europe's largest economy have eased.
The Munich-based Ifo economic institute said its business climate index jumped to 103.8 from 101.7 in July.
That added to the upbeat tone in stocks markets but weighed on German bond yields, which rose to their highest level in more than two-weeks at 0.367 percent.
"We have low volumes today, but the biggest risks the market were discounting were trade wars, so any reduction in trade war risk such as NAFTA talks or even Trump trying to find bilateral deals with everyone, has pushed U.S. shares to new records and will support markets," said Angelo Meda, head of equities and a portfolio manager at Banor SIM in Italy.
"The global economy is on track, there's less trade war risk, the only cloud on the horizon is Italy," Meda added, referring to upcoming budget talks in the weeks ahead.
In currency markets, the dollar steadied against its peers.
The dollar index, which tracks the U.S. currency against a basket of six major rivals, was up 0.1 percent at 95.253.
The euro was marginally lower at $1.1608 after going as high as $1.1654, its strongest since Aug. 2, while hopes of progress in U.S./ Mexican NAFTA talks lifted the Mexican peso 0.6 percent to 18.81 per dollar.
Oil prices fell, while gold edged lower as the dollar recovered.
Reporting by Dhara Ranasinghe; Additional reporting by Tom Finn and Helen Reid in London and Andrew Galbraith in Shanghai; Editing by Alison Williams and Jane Merriman